What makes the UK so attractive for high yield bond restructurings?

What makes the UK so attractive for high yield bond restructurings?
Many European jurisdictions are developing procedures that they hope will rival those of the UK. However, Richard Nevins, senior partner in Cadwalader, Wickersham & Taft’s financial restructuring department (London), says the UK will likely remain the jurisdiction of choice for bond restructuring.

What has been the situation in the high yield bond markets over recent years?

Since the collapse of Lehman and the onset of the Eurozone crisis there has been a significant rise in the use of high yield bond debt as a means of financing in the UK, Europe and beyond. In the first half of 2014 €75bn of high yield debt has been issued in Europe (€75bn was issued in the whole of 2013) compared to approximately €25m in each of 2006 and 2007. Much of this new debt has been incurred to refinance maturing bank debt as the high yield bond market supplants Europe’s weakened banking sector as the finance source of choice for the continent’s debtors. This has allowed the ‘wall of maturities’ (when leveraged buyout deals entered into at the height of the 2004–07 cycle mature) which many predicted will lead to the next financial crisis, to be pushed back to later in this decade (approximately €120bn of high yield debt comes due in 2018).

The attraction of bond over bank debt for Europe’s debtors, struggling in stagnating economies, is obvious. Bond indentures contain only incurrence covenants and not the financial maintenance covenants typically seen in loan agreements. In addition, the terms and structure of bond issuances tend not to be negotiated as vigorously as bank debt (if at all). Issuers have taken advantage of liquidity in the high yield market caused by investors chasing yield in a low interest rate environment to replace relatively restrictive bank debt with looser termed bond debt.

In light of this growth in the high yield market, bondholders have become more sophisticated in the way they deal with restructuring situations. The

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